Baker v Gilbert [2015] NZHC 3311 (18 December 2015)

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UNDER	the Companies Act 1993
IN THE MATTER OF	the liquidation of VICTORIA STREET WEST LIMITED (IN LIQUIATION)
BETWEEN	NEVILLE MCCLUTCHIE BAKER SAM KAHUI SIR NGATA LOVE REBECCA ELIZABETH MELLISH KURA MOEAHU TOARANGATIRA POMARE TE RIRA PUKETAPU HOKIPERA RUAKERE MORRIS TE WHITI LOVE HOWARD KEVIN TAMATI AND MARK TE ONE AS TRUSTEES OF THE PORT NICHOLSON BLOCK SETTLEMENT TRUST Plaintiffs
AND	JOHN MICHAEL GILBERT Defendant

Hearing:	15 December 2015 at 10:00am
Appearances:	G J Toebes for Plaintiffs A R Nicholls for Defendant
_Judgment:	_{18 December 2015}

[1] This case concerns a dispute about who should be the liquidator of Victoria Street West Ltd (in liquidation). John Gilbert, an Auckland accountant, is the incumbent. He was appointed by a shareholders’ resolution putting the company into liquidation under s 241(2)(a) of the Companies Act 1993. He says that his appointment was confirmed at a meeting of creditors held under s 243 of the Companies Act on 8 May 2015. The plaintiffs, unsecured creditors, initially challenged the confirmation on two grounds, insufficient notice given to creditors (Companies Act, Schedule 5, cl 2) and a tainted result because of the voting of related entities (s 245A of the Companies Act), but withdrew the first ground. They ask the court to appoint liquidators of their choice.

[2] Mr Anthony Gapes is an Auckland property developer and investor. He is the director and shareholder of Victoria Street West Ltd. In the way of such people, he has a complex web of companies. He often changes the names of his companies. He cannot, however, change the number under which the company is registered at the Companies Office. Victoria Street West Ltd is the company registered under the number 1838672. When it was incorporated on 10 July 2006 it was called Redwood Corporate Trustee Ltd. It was renamed Redwood Group Ltd on 1 September 2006. On 2 October 2014, Redwood Group Ltd changed its name to R W Corporate Trustee Ltd. On 8 April 2015, R W Corporate Trustee Ltd changed its name to Victoria Street West Ltd.

[3] It is necessary to distinguish that company from another Gapes company, with registered number 1203552. That was incorporated as Barnaby Property Ltd on

12 April 2002. It changed its name to Redwood Group Ltd on 2 October 2014. It changed its name to Victoria Street W Ltd on 7 April 2015 and on 8 April 2015 it was renamed Redwood Group Ltd. The company with registered number 1203552 is not in liquidation. Mr Gapes is also its sole director and shareholder. The point to note is that until 2 October 2014 Redwood Group Ltd was the name of the company numbered 1838672, but that since that date it has been the name of the company numbered 1203552.

[4] The plaintiffs are the trustees of the Port Nicholson Block Settlement Trust. They are creditors of Victoria Street West Ltd for $731,474.68. In 2010 the trust

had paid a deposit of $750,000 to buy a property at 83 Waterloo Quay, Wellington. The trust assigned the benefit of the agreement for sale and purchase to Victoria Street West Ltd. Under the assignment, Victoria Street West Ltd was required to reimburse the trust for the deposit by 31 March 2011, together with interest. While the company made some payments, it did not pay in full. The trust issued a statutory demand which the company contested. That led to the parties entering into a deed of covenant on 17 October 2014, under which the company undertook to repay

$731,474.68 by 4:30pm on Friday 10 April 2015. The deed provided that if the company defaulted, the company would take no steps to delay, frustrate or oppose on any basis whatsoever any application by the trust for orders to appoint liquidators. The company would be estopped from taking any steps to oppose, delay or frustrate any such applications.

[5] On 10 April 2015 the company had not paid the debt. Instead Mr Gapes, as shareholder, passed a special resolution for Victoria Street West Ltd to go into liquidation. He appointed Mr Gilbert liquidator. There is no challenge to Mr Gilbert’s initial appointment as liquidator. It was effective under s 241(2)(a) of the Companies Act. There is no suggestion that under s 280 of the Companies Act Mr Gilbert was disqualified from acting as liquidator.

[6] Under the deed, the trustees made it clear that default in payment would lead to liquidation. They got the liquidation, but not the liquidator they wanted. They regard the company as frustrating steps they would take to have liquidators of their choice appointed.

[7] Mr Gilbert’s first report is dated 17 April 2015. The report advised creditors that one creditor had requested a meeting. He advised that he intended to hold the meeting on Friday 8 May 2015 at his offices at Level 1, 26 Crummer Road, Grey Lynn, Auckland. The report includes a schedule of some 40 creditors. The statement of affairs shows funds in a bank account of $34,223.56, with other assets not expected to realise anything. There is said to be a floating charge debenture securing

$26,428.29. Unsecured creditors are said to come to $1,407,080.89. The report states that the company acted as a corporate trustee for the Redwood Group Trust.

[8] The plaintiffs criticise the information in Mr Gilbert’s report. That criticism may not be fair. The report was prepared very shortly after Mr Gilbert was appointed. It is unlikely that he would have had enough time to investigate matters fully and to give a more thorough report.

[9] The report stated that the company had not traded since 2014. It can therefore be inferred that the company was trading up until then.

(1) Subject to section 245 and to subsection (8), the liquidator of a company must call a meeting of the creditors of the company for the purpose,—

(a) in the case of a liquidator appointed pursuant to paragraph (a) or paragraph (b) of subsection (2) of section 241, of resolving whether to confirm the appointment of that liquidator or to appoint another liquidator in place of the liquidator so appointed:

(b) in the case of a liquidator appointed pursuant to paragraph (c) of subsection (2) of section 241, of resolving whether to confirm the appointment of that liquidator or to make an application to the court for the appointment of a liquidator in place of the liquidator so appointed:

(1A) If the appointment of a liquidator under paragraph (a) or paragraph (b) of section 241(2) is not confirmed at a meeting of creditors and another liquidator is not appointed in place of that liquidator, the appointment of the liquidator under paragraph (a) or paragraph (b) of section 241(2) continues until another liquidator is appointed.

(a) must be given to every known creditor together with the report and notice referred to in section 255(2)(c); and

(b) if the liquidator receives a notice under section 245(1)(b)(iii), must be given within 10 working days after receiving the notice.

(3) Public notice of the meeting of creditors must also be given by the liquidator not less than 5 working days before the date of the meeting.

(4) Except if subsection (2)(b) applies, a meeting of creditors must be held,—

(a) in the case of a liquidator appointed under paragraph (a) or paragraph (b) of subsection (2) of section 241, within 10 working days of the liquidator’s appointment; or

(b) in the case of a liquidator appointed under paragraph (c) of subsection (2) of section 241, within 30 working days of the liquidator’s appointment; or

(4A) If subsection (2)(b) applies, a meeting of creditors must be held within 15 working days after the liquidator receives a notice under 245(1)(b)(iii) requiring a meeting of creditors to be called.

(6) If at a meeting of creditors it is resolved to appoint a person as liquidator of the company in place of the liquidator appointed pursuant to paragraph (a) or paragraph (b) of subsection (2) of section 241, the person who it is resolved to appoint as liquidator shall, subject to section 282, be the liquidator of the company.

(7) If at a meeting of creditors it is resolved to apply to the court for the appointment of a person as liquidator in place of the liquidator appointed pursuant to paragraph (c) of subsection (2) of section 241, the liquidator of the company must forthwith apply to the court for the appointment of that person as liquidator and the court may, if it thinks fit, appoint that person as the liquidator of the company.

(8) Nothing in this section applies to the liquidator of a company appointed pursuant to paragraph (a) or paragraph (b) of subsection (2) of section 241 if, within

20 working days before the appointment of the liquidator, the board of the company

resolved that the company would, on the appointment of a liquidator under either paragraph (a) or paragraph (b) of that subsection, be able to pay its debts and a copy of the resolution is delivered to the Registrar for registration.

(9) The directors who vote in favour of such a resolution must sign a certificate stating that, in their opinion, the company would, on the appointment of a liquidator under either paragraph (a) or paragraph (b) of subsection (2) of section 241, as the case may be, be able to pay its debts, and the grounds for that opinion.

(10) Every director who fails to comply with subsection (9) commits an offence and is liable on conviction to the penalty set out in section 373(1).

(11) Except for subsection (5), this section does not apply if the liquidator is appointed under section 241(2)(d).

[11] Mr Gilbert gave written notice of the creditors meeting on 1 May 2015 to all creditors. The meeting was held on 8 May 2015 at the time and place given in his

notice to creditors. A representative of the plaintiffs attended. Mr Gilbert chaired the meeting. No minutes of the meeting have been put in evidence. It is, however, not disputed that at the meeting a resolution was put that “John Michael Gilbert’s appointment as liquidator be confirmed.” The trustees voted against the resolution. They were the only ones to do so. Seven creditors voted in favour of the resolution. The value of the debts owed to them exceeded the debt to the trustees. The evidence does not say whether other creditors attended in person, cast postal votes or by proxies.

[12] Under Schedule 5 cl 5 of the Companies Act, the voting requirements for a resolution to be passed at a meeting of creditors are a majority in number and value. Mr Gilbert accordingly says that the resolution was effective to confirm his appointment.

[13] The creditors who voted in favour of the resolution were: (a) ENG Trust Ltd $31,613.32

[14] It is not contested that ENG Trust Ltd, Orakei Investments Ltd and RWG Trust are related entities under s 245A of the Companies Act. Mr Gapes is director of ENG Trust Ltd and Orakei Investments Ltd. He is the shareholder of ENG Trust

Ltd. Victoria Street West Ltd is the shareholder of Orakei Investments Ltd.¹On Victoria Street West Ltd going into liquidation, Mr Gilbert took control of the shares of Orakei Investments Ltd as an asset of Victoria Street West Ltd. Mr Gapes has remained director.

[15] The plaintiffs are seeking alternative liquidators, because they fear that Mr Gilbert, as Mr Gapes’ appointee, will not carry out a thorough investigation. They say that if Victoria Street West Ltd had liabilities to other Gapes entities, then those liabilities are likely to be represented by corresponding assets (for example, the funds applied to acquire assets to equivalent value or greater) or those entities had assets which would justify providing credit. An investigation might show that there are more assets than initially disclosed in Mr Gilbert’s first report. They point out that the company was trading until 2014. They refer to a website that describes the activities of Mr Gapes in property development and investment. According to the website, over the years Mr Gapes’ companies have undertaken many successful projects valued at hundreds of millions of dollars. The webpage includes this statement: “Redwood are currently focusing on the Spring Park residential development, Mt Wellington, the $120 million five-mile retail development in Queenstown, and potential office developments in Wellington”. That has to be qualified. There has been a recent news announcement that the Spring Park development has foundered. The development company is now in receivership. Accordingly the plaintiffs seek a thorough investigation because they believe that there may be more substance to the company than might at first appear.

[16] They also make the point that the $1.4 million of creditors in Mr Gilbert’s report did not include the debt of $731,000 owed to them. They point to the fact that the website refers to Mr Gapes’ property development activities under the name “Redwood Group Ltd,” the former name of Victoria Street West Ltd. That company has been seemingly reduced to an assetless shell, but business continues to be carried on under the name, Redwood Group Ltd, by the company formerly known as “Victoria Street W Ltd”. They refer to the Phoenix company provisions of the Companies Act, ss 386A-386F as matters that a liquidator could pursue in the

_{interests of creditors. While that might be of little interest to
related creditors such as}

¹See Companies Act, s 245A(3)(d)(g) and (k) and the definition of “related company” in s 2(3).

ENG Trust Ltd, Orakei Investments and RWG Trust, it would be of interest to external creditors, including the plaintiffs.

(a) Seeking orders setting aside the resolution of 8 May confirming Mr Gilbert’s appointment on the ground that he gave insufficient notice. They ask for orders under s 286 to call a fresh meeting, to bar the related creditors from voting and to appoint fresh liquidators;

(b) Orders under s 245A setting aside the resolution, directing a fresh meeting and barring the related creditors from voting; or, alternatively, removing Mr Gilbert as liquidator and replacing him with liquidators of their choice.

[18] While both causes of action seek orders against ENG Trust Ltd, Orakei Investments Ltd and RWG Trust, they were not named as respondents and were not served. In my minute of 27 October, I directed them to be served. They have been, but they have taken no steps.

[19] On the facts the plaintiffs have shown that Mr Gilbert did not give adequate notice of the meeting. Under s 243(5), every meeting of creditors under that section must be held in accordance with Schedule 5 of the Companies Act. Under Schedule

5, written notice of the meeting must be sent to every creditor entitled to attend, not less than five working days before the meeting. It is common ground that because Mr Gilbert sent notices to the creditors on 1 May, he gave notice less than five

A reference to a number of days between 2 events does not include the days on which the events happened.

[20] Mr Gilbert admits the failure to give notice on time but relies on cl 2(3)(a) of

Any irregularity in or a failure to receive a notice of a meeting of creditors does not invalidate anything done by a meeting of creditors if –

(b) all the creditors entitled to attend and vote at the meeting attend the meeting without protest as to the irregularity or failure; or

[22] Pragmatically the plaintiffs do not press their first cause of action. They accept that without orders under s 245A, a reconvened meeting called after proper notice would give the same result as the meeting of 8 May. Even if the related creditors were barred from voting, there would be a majority in number for Mr Gilbert (four), and there would be a majority in value (the plaintiffs) against him. They say that that would be a stalemate. Whether that is so turns on s 243(1A), a matter I deal with below.

[23] I accept Mr Gilbert’s procedural points: before the court can make an order under s 286(3) requiring a liquidator to comply with a duty, the applicant must give the liquidator a notice under s 286(2) of the failure to comply. There is no evidence

_{of any such notice. The matter would be better considered on an
application under s}

²Companies Act, s 2 - weekends are excluded from the definition of “working days”.

284(1)(g): to declare whether or not the liquidator was validly appointed or validly assumed custody or control of property. Creditors need leave to apply under s 284, but there is no such application.

[24] Instead the case will be decided only under the cause of action under s 245A.

Power of court where outcome of voting at meeting of creditors determined by related entity

(a) a resolution at a meeting of creditors was passed, defeated, or required to be decided by a casting vote; and

(b) the resolution would not have been passed, defeated, or required to be decided by a casting vote if the vote or votes cast by a particular related creditor or particular related creditors were disregarded; and

(i) is contrary to the interests of the creditors, or a class of creditors, as a whole; and

(ii) has prejudiced, or is reasonably likely to prejudice, the interest of the creditor who voted against the resolution, or for it, as the case may be, to an extent that is unreasonable having regard to—

(A) the benefits accruing to the related creditor, or to some or all of the related creditors, from the resolution, or from the failure to pass the resolution; and

(B) the nature of the relationship between the related creditor and the company, or between the related creditors and the company; and

(c) order that a specified related creditor or creditors must not vote on the resolution or on a resolution to vary or amend it:

(d) make any other orders that the Court thinks necessary. (3) In this section,—

(b) a relative or spouse of a promoter; or (c) a relative of a spouse of a promoter; or (d) a director or shareholder; or

(e) a relative or spouse of a director or shareholder; or (f) a relative of a spouse of a director or shareholder; or (g) a related company; or

(h) a beneficiary under a trust of which the company in liquidation is or has at any time been a trustee; or

(k) a company one of whose directors is also a director of the company in liquidation; or

(l) a trustee of a trust under which a person (A) is a beneficiary, if A is a related entity of the company in liquidation under this subsection.

[26] For this section, ENG Trust Ltd, Orakei Investments Ltd and RWG Trust are related creditors under s 245A(3). They are all related entities. That is not disputed. Nor is the plaintiffs’ standing to apply.

[27] Under subsection (1), the section applies only if a resolution is “passed, defeated or required to be decided by a casting vote”. Given the plaintiffs’

abandonment of the first cause of action, the validity of the resolution is no longer in issue.

[28] On the voting on the confirmation resolution Mr Gilbert obtained a majority in number and in value. He obtained the majority in value because the value of the related creditors was greater than the value of the debt owed to the plaintiffs. But for the votes of the related creditors, the resolution would not have passed.

[29] Section 245A was inserted in the Companies Act under s 18 of the Companies Amendment Act 2006. In Grant v CP Asset Management Ltd, the Court of Appeal noted that the purpose was to increase liquidators’ accountability to creditors and to “‘reduce the scope for company shareholders and related parties to defeat the interests of creditors at creditors’ meetings’ by allowing the court to

[30] Under s 245A(1)(c), the court must determine whether the passing of the resolution is “contrary to the interests of the creditors, or a class of creditors, as a whole”. In Grant v CP Asset Management Ltd the Court of Appeal said:

[43] The legislation leaves it to the court to define a class of creditors if it thinks fit. In an insolvency context the Court normally exercises this jurisdiction to prevent injustice that may occur when the interests of some creditors differ materially from those of others. A class is

“confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their

creditors form a separate class. It recognises rather that their interests need not differ from those of other unsecured creditors, who

[44] The Court must next consider whether the resolution has prejudiced, or is reasonably likely to prejudice, the interests of the minority creditor who voted against it to an extent that is unreasonable having regard to (a) the benefits accruing to the related creditors, or some of them, from the resolution, (b) the nature of the relationship between the related creditors and the company in liquidation, and (c) any other matter. This element contemplates that although the creditors may form part of the same class the resolution may benefit some of them, the related creditors, while harming others. If the preferences

of the minority are to prevail, the Court must find the prejudice unreasonable having regard to the benefits to the related creditors and their relationship to the company in liquidation.

[45] If satisfied of all of the matters in s 245(1), the Court may set the resolution aside, order that a new meeting be held to reconsider the

[31] The resolution goes to the appointment of a liquidator. It is still relatively early in the liquidation. The question is whether the resolution in favour of the liquidator chosen by the shareholder should be allowed to stand when the votes of entities associated with the shareholder have outvoted the major external creditor.

[32] For present purposes, it is convenient to separate creditors into internal and external creditors. By “internal creditors” I mean those companies and entities within the Gapes group. Those creditors have distinct interests. Entities within the Gapes group are unlikely to be interested in the liquidation being conducted in a way which will allow a thoroughgoing investigation of intra-group transactions with a view to clawing back assets from other entities within the group. They would, for example, be concerned at any moves a liquidator might take to obtain pooling orders under ss 271-272 of the Companies Act. On the other hand, external creditors will have the normal interest described by the Court of Appeal in Grant v CP Asset

The creditors of a failed company are ordinarily entitled to have its affairs thoroughly investigated to learn whether it has any assets, or the liquidator any rights of recourse, that might repay them. Where a creditor, or in this case the liquidator, is prepared to fund such investigation, the court will not lightly deny them the opportunity that it represents.

[33] The next question is whether the appointment of Mr Gilbert is contrary to their interests. A liquidator must have the necessary qualifications, experience, independence and impartiality. When the court considers the appointment of a liquidator (for example under s 243(7), s 241AA(3) and s 283(4)) it applies the test of suspicion, so long as there is a factual foundation for that suspicion.⁵Appropriate

(a) His practice of changing the names of companies to keep the Redwood name alive, while letting insolvent companies in his group fall by the wayside. Those not in the know stand to be misled;

(b) His putting the company into liquidation by shareholder’s resolution when he had undertaken not to thwart the plaintiffs’ steps to put the company into liquidation;

That creates a concern that the liquidator of his choice may not act as hard for the creditors as one appointed by creditors.

[35] It does not follow as a matter of course that a liquidator chosen by Mr Gapes will lack the necessary attributes. But there is one matter in the case of Mr Gilbert. While he assumed control of the shares of Orakei Investments Ltd, he left Mr Gapes as a director of that company. He could have used his control to have Mr Gapes removed as director. He did not. Mr Gapes as director of Orakei Investments arranged for that company to vote in favour of Mr Gilbert. Mr Gilbert at the least acquiesced in that arrangement which was directed at confirming his own appointment. That gives an appearance of less than the complete independence required of a liquidator in an insolvent liquidation. Ordinarily a liquidator should be neutral in any creditors’ vote on his appointment: see for example the bar on liquidators soliciting for proxies under reg 24 of the Companies Act 1993

Liquidation Regulations 1994. Here Mr Gilbert connived at the arrangement under which Orakei voted for him. That was less than neutral.

[36] In these circumstances there is room to doubt that Mr Gilbert would carry out his duties with the same independence as a liquidator chosen only by external creditors.

[37] As for the balancing under s 245A(1)(ii), having regard to the factors (A) and

(B) - the close relationship between the related creditors and Victoria Street West

Ltd, and the interests of those creditors in having a “vanilla” liquidation – I do not regard the interests of the Gapes-related entities as carrying so much weight that the prejudice to the plaintiffs in having a liquidator appointed by Mr Gapes is reasonable. The interests of the Gapes entities diverge from those of the external creditors in seeing that recovery for external creditors of Victoria Street West Ltd should not prejudice the interests of the wider Gapes-controlled Redwood Group. In this liquidation that interest cannot justify subordinating the concerns of the plaintiffs in having the liquidation administered by independent liquidators.

[38] Mr Gilbert did not strongly resist the argument that s 245A(1) applied. I am relevantly satisfied under the subsection.

[39] The parties differed on the orders to be made. The plaintiffs argued for the court to appoint the liquidators they had chosen. On the other hand, Mr Gilbert proposed a fresh meeting to be called after appropriate notice and with the related- creditors barred from voting.

[40] The plaintiffs provided a written consent with the appropriate certificate from two insolvency practitioners from a recognised practice. As a late glitch it turned out that others in their practice had been appointed receivers of the company carrying out the Spring Park development, but I was assured that alternative independent insolvency practitioners could be found. The case does not turn on that aspect.

[41] The court may make any or all of the orders provided in subsection (2). An order setting aside the resolution of 8 May is straightforward. The plaintiffs resist directions for a new meeting with bans on voting by the related creditors. I accept that “other orders” under subsection (2) may include appointing liquidators. The question is whether to use that power in this case.

[42] If I were only to order a new meeting and to bar the related creditors from voting, a possible result is that even if the plaintiffs obtained a majority in value of the votes, they would not have a majority in number. They could not get a successful

resolution appointing another liquidator. In that case under s 243(1A) Mr Gilbert would remain as liquidator, until another liquidator is appointed. In case it is thought that that is to be an interim arrangement to last only until another meeting of creditors is convened to consider the question of appointment afresh, the Court of Appeal has indicated otherwise. In Trinity Foundation (Services No 1) Ltd v

Messrs Downey and Black were required, by s 243 of the Act, to summon a meeting of the creditors. Under the Act, the creditors meeting provides an opportunity for the creditors to confirm or replace the liquidators chosen by the shareholders. As it turned out, Messrs Downey and Black were not replaced at the creditors meeting and thus continue in office until otherwise removed, see s 243(1)(a). The removal of a liquidator who is not prepared to resign requires a Court order under s 286.

As noted, the scheme of the legislation is that once the first meeting has concluded without the removal of the liquidators appointed by the shareholders, the position of those liquidators is entrenched.

245A(2), the plaintiffs submitted that a split majority (one majority in value, the other in number) would produce an inconclusive result. But s 243(1A) does provide an outcome for a split majority. When there is neither an effective resolution confirming the shareholders’ liquidator nor an effective resolution appointing another in his place, the subsection directs that the shareholders’ liquidator is to remain in office. The short point is that to remove a shareholders’ appointee at a s 243 meeting, a resolution with a majority in number and value is required. The plaintiffs’ argument relying on a gap in the legislation does not work. A reconvened meeting of creditors will give a result.

[44] So the question is whether the court should use the power to make other orders under s 245A(2), when a meeting of creditors can decide whether Mr Gilbert should remain liquidator.

[45] The Companies Act does not give the court a general power to remove and appoint liquidators. There is no provision comparable to s 237(1) of the Companies

⁶Trinity Foundation (Services No 1) Ltd v Downey [2006] NZCA 310; (2006) 3 NZCCLR 401 (CA) at [13] and [21].

Act 1955 under which the court could remove a liquidator “on cause shown”.⁷

Section 284(1) does not give a wide discretionary power to remove liquidators, only the power to declare under sub-clause (g) whether a liquidator has been validly appointed.⁸Instead certain provisions allow the court to remove liquidators in specified circumstances:

(a) Under s 241AA(3) the court may review a shareholders’ appointment at the request of an applicant for a liquidation order if the liquidation application is on foot when the liquidation starts;

(b) Under s 283(4) the court may review the appointment of a successor to a liquidator on a vacancy under that section;

(c) Under s 286(4) the court may remove a liquidator who fails to comply with a compliance order under s 286(3) or who is or becomes disqualified under s 280.

(d) Under s 243(7) in a court-ordered liquidation under s 241(2)(c), where a meeting of creditors resolves on a liquidator other than the one appointed by the court.

[46] Importantly, s 243 does not provide for court intervention in the appointment of liquidators in regularly conducted creditors’ meetings after a company has gone into liquidation under s 241(2)(a) and (b). Instead the matter is to be decided by a meeting of creditors. Court intervention is required only if something goes wrong, for example, non-compliance with Schedule 5. In such interventions, as when the

court is satisfied that substantial injustice has been caused,⁹the court exercises its

_{power remedially – to set aside whatever has gone wrong and give
the opportunity to}

⁷The case law on the words “on cause shown” allowed the courts to remove liquidators if there was some unfitness in terms of personal character or because there was some connection with other parties, or as a result of circumstances which the liquidator became mixed up in. The case law shows that in some cases the power was used more extensively, as when the court considered that a particular person should not continue as a liquidator and someone else could do the job more effectively. See McMahon v Ah Sam [2014] NZHC 659 at [11].

run matters correctly. It is not an occasion for the court to impose its own views in place of the creditors’.

[47] Section 245A allows for court intervention when something has gone wrong in a creditors meeting – when the outcome of voting has been determined by related creditors. The court’s powers under subsection (2) are similarly remedial: set aside the tainted resolution, direct a new meeting and bar related creditors from voting. It allows for a fresh meeting to be run without related creditors influencing the voting, not for the court to appoint its preferred liquidator.

[48] If Mr Gapes had ensured that his entities did not vote at the creditors meeting on 8 May, the plaintiffs could have no complaint under s 245A and could not object to Mr Gilbert’s appointment under s 243(1A). If a new meeting is convened to consider the same resolution but without voting by Gapes-related entities, the plaintiffs can also have no complaint if a split majority results in Mr Gilbert staying in office. Instead a new meeting gives them the opportunity to share with other creditors their views as to the merits or otherwise of Mr Gilbert acting as liquidator and to influence other creditors in voting on his appointment. They cannot ask for more.

[49] The plaintiffs referred to the orders of the Court of Appeal in Grant v CP Asset Management Ltd¹⁰as authority for the court to appoint liquidators on an application under s 245A. That was a case of a court-ordered liquidation. The court appointed liquidators on an application under s 243(7).¹¹It is not authority for the court to appoint new liquidators in the case of liquidations under s 241(2)(a) and (b) on a successful application under s 245A.

[50] In summary, the general policy is that on liquidations started by shareholder resolution the confirmation or removal of the shareholders’ liquidator is by resolution at a creditors meeting under s 243(1)(a), not by court order. If something

_{has gone wrong, as under s 245A, the usual course is to set aside the
resolution and}

direct a fresh meeting, but not for the court to take over the decisions reserved for the creditors. Nothing in the circumstances of this case requires a different approach.

[51] As it will be for creditors to decide at a new meeting under s 243 whether to confirm or to remove Mr Gilbert, creditors should not read into this decision any indication as to how they should vote. The decision is theirs, not mine.

[52] As I am giving this decision just before Christmas, I direct a new meeting to be held after the holiday break. I make these orders:

(a) The resolution of 8 May 2015 confirming Mr Gilbert as liquidator is set aside.

(b) Mr Gilbert is to summon a meeting of creditors under s 243(1)(a) to consider a resolution to confirm his appointment as liquidator, any resolution to appoint another liquidator or liquidators in his place and any resolution for the purpose of s 258(1)(b).

(ii) Mr Gilbert is to give notice to all known creditors of Victoria Street West Ltd, whether they have claimed in the liquidation or not;

(iii) In his notice Mr Gilbert is to identify the company as that formerly known by the names in [2] above.

(v) Mr Gilbert is to give the notice at least ten clear days before the meeting.

(vi) The following must not vote at the meeting on any resolution under s 243(1)(a) and (c): Mr Gapes, Mr Gilbert, ENG Trust Ltd, Orakei Investments Ltd, RWG Trust and any related creditor of Victoria Street West Ltd under s 245A(3).

(d) The plaintiffs have costs on the proceeding under category 2 plus disbursements approved by the Registrar. The costs are expenses in the liquidation under Schedule 7, cl 1(1)(a) of the Companies Act, but are not payable by Mr Gilbert personally.

High Court of New Zealand Decisions

Baker v Gilbert [2015] NZHC 3311 (18 December 2015)